Hundreds of people have been evacuated after a volcano erupted in Iceland. Floods washed away roads after the glacier melted. Photograph: Halldor Kolbeins/AFP/Getty Images

As many as 800 people had to be evacuated after the Eyjafjallajokull volcano in southern Iceland erupted yesterday.

The eruption from within a glacier melted ice and triggered flooding in the surrounding area. Around one fifth of the ice in the crater is thought to have melted, with further flooding expected .

The flood threatened Highway 1, the ringroad around the island, but the protective walls largely held up despite some damage. A newly built bridge was thought to be in danger and a construction crew working on a nearby harbour was ordered into action. They dug holes in the highway in four different places, changing the direction of the waters.

"The guy on the Caterpillar really earned his pay," the finance minister, Steingrimur Sigfusson, told the Frettabladid newspaper. Sigfusson, himself a geologist, proudly claimed he was carrying water for the other geologists.

Most of those evacuated were local farmers. Some were allowed to return to feed their livestock but much farming land has been destroyed.

On Tuesday night, a group of 30 British schoolgirls on a school trip were quickly evacuated from a nearby dormitory, many still in their pyjamas. They were asked not to worry their parents by sending text messages. An hour and a half later they were allowed to return to collect their things.

There are fears that the eruption might spread to Katla, a bigger volcano in the much larger Myrdalsjokull glacier. Katla erupts every 40-80 years. The last major eruption occurred in 1918, so it is long overdue. The last eruption in the Eyjafjallajokull glacier, in 1821, spread to Katla, causing serious flooding.

On Facebook pages, as well as in Reykjavik cafes, many saw the eruption as a welcome relief from constant reports of economic collapse and corruption, which remains the main topic of discussion.

Even though flights have been cancelled across Europe, the roar of jet engines can still be heard over Reykjavik. Local flights have not been disrupted, and nearby Keflavik international airport remains open. Flights to north America have not been affected, but flights to the Nordic countries have been delayed, with flights to London cancelled.

Norway was the first country to shut down flights, followed by many others across Europe.

"I can see well to the north, but less than a kilometre to the south," said Gunnar Sveinsson. "Everything is black."

In some areas, the sky grew so dark that headlights of cars proved little use.

Reykjavik, however, escaped any adverse effects as the winds blew the ash cloud south and east.

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